Analyzing the Evolution Logic and Ecological Value of DeFi 2.0 Era through IXO Protocol

Introduction

In 2022, there were discussions circulating in the market about DeFi 2.0, which we have also discussed. Compared to the trading structure of CEX, theoretically, under static development, the trading volume of the DeFi market still has about 13 times the growth potential of its scale at that time. This market potential is sufficient to give rise to more advanced DeFi projects. However, progress in the market has been slow over the past two years, discussions about DeFi 2.0 have faded, and the market performance of DeFi projects has been disappointing, not only failing to outperform the fundamentals but also lagging behind Bitcoin and even some infrastructure sectors.

The reasons for this, we believe, are that the previous stage of DeFi was merely a financialization of the zero-sum game familiar to traditional financial speculation. On one hand, compared to the role of capital allocation in traditional finance, DeFi has had little effect in the past; on the other hand, DeFi's role and function in the crypto world have only scratched the surface, failing to find its place in the construction of the economic system of the crypto world.

This article will take IXO Protocol as an example to explore the above two issues through its model and practical examples.

01 Capital Optimization

The IXO Protocol model aims to improve market trading volume and liquidity depth, ensuring that Token providers can raise the capital they need.

In the IXO protocol, there are three roles: Token provider, trader, and guarantor:

Token provider: Refers to the fundraisers who issue tokens on the IXO platform, issuing guaranteed assets to raise funds.

Trader: This is the investor who purchases the crypto assets issued by the project party in the market and can also resell the tokens to the guarantor to reduce risk. If the token price rises, the investor can sell the token to earn 50% of the profit, while the other 50% goes to the guarantor.

Guarantor: Provides credit endorsement for the assets issued by the project party and can earn 50% of the profit share from the investor when the token price rises. If the guaranteed price falls, the guarantor needs to repurchase the investor's token shares at a proportional price.

It can be seen that in the IXO Protocol, the project party, investor, and guarantor form a triadic game system. In this system, each participant has their own interests and goals, while goodwill acts as an incentive mechanism that promotes cooperation among the three parties, increasing the overall stability and efficiency of the system. Through the accumulation and distribution of goodwill, the IXO protocol encourages more participants to join the role of guarantor, which helps to form a healthier and more active ecosystem. The active participation of guarantors not only reduces the overall risk of the system but also promotes effective capital flow and reasonable resource allocation.

In this model, compared to direct trading on cryptocurrency exchanges and DEX, the IXO protocol is better at addressing pain points such as liquidity, investment risk, trust, and incentive mechanisms:

Insufficient Liquidity

Traditional decentralized exchanges (DEX) suffer from liquidity being concentrated on popular assets due to the automated market maker (AMM) model, resulting in severe liquidity shortages for long-tail assets. The IXO protocol introduces a guarantor mechanism that can provide liquidity guarantees for any asset, significantly improving trading depth and liquidity.

High Investment Risk

In traditional exchanges, investors must fully bear the risk of asset price fluctuations. In the IXO protocol, guarantors provide partial or full price guarantees for trades, making investor risk controllable and instilling greater confidence in trading. For fully guaranteed assets, investors do not need to worry about any capital losses.

Lack of Trust

The cryptocurrency market generally faces a trust crisis, making it difficult for investors to assess the credibility of project parties and opinion leaders. In IXO, guarantors need to "stake" their own funds, and only truly trustworthy projects and KOLs can receive substantial guarantor support. This kind of security based on real funds is the most efficient and secure.

Lack of Incentive Mechanisms

DEX lacks effective incentives for participants to contribute to the ecosystem. The IXO protocol combines guarantor profits with social credit, providing dual incentives—economic and non-economic—for guarantors. Guarantors can gain goodwill, which further reflects their social value.

Based on this, it can be seen that IXO Protocol provides cross-cycle financial guarantees for project parties. This can be likened to Microstrategy in traditional financial markets, which has achieved financing and investment strategy upgrades for Wall Street listed companies through the trust mechanism of Bitcoin.

02 Goodwill Value

The IXO Protocol is a decentralized exchange (DEX) with a guarantor-insurance mechanism, and its core theory is based on the behavioral economics concept of mental accounting proposed by economist Daniel Bernoulli in 1738. IXO introduces this concept and SocialFi into insurance trading, allowing community KOLs to guarantee assets recognized by the community, bear the risk of price fluctuations, and earn goodwill and 50% of the profit share. In the IXO platform, trading depth is redefined; if an asset is guaranteed to reach 100%, it means that users purchasing the asset incur no losses, which is difficult to achieve in DEX and CEX.

The IXO Protocol proposes an innovative crypto asset trading model based on guarantor insurance, which is expected to address the current issues of trust deficiency, rampant fraud, and high investment risks in the crypto market. However, the success of the entire protocol depends on the integrity and strength of the guarantors. If the number of guarantors' collateral is low and cannot cover a large number of investors, its protective role will be greatly diminished. Therefore, building a high-credit guarantor system will be a top priority for the protocol's development. However, in the game system of project parties, investors, and guarantors, it seems that guarantors bear more risks while only reaping a small profit?

Of course, the answer is negative. In the IXO protocol, investors bear a minimum of 0% risk (full guarantee), earn 50% profit, and gain 0% goodwill. Guarantors may bear up to 100% risk, earning 100% of the guaranteed tokens or 50% of the profit from token appreciation, and gain 100% goodwill.

Profit: Guarantors share 50% of the profits from the appreciation of the guaranteed tokens.

Financing Revenue: They can share 5% of the financing amount issued by the project party as revenue.

Goodwill: Guarantors provide guarantees for the assets sold by the project party, earning 100% social goodwill. This accumulation of goodwill can be seen as an accumulation of social capital, which can bring more collaboration opportunities, higher social status, and further value realization opportunities for the guarantors.

In the IXO protocol, the concept of goodwill is given new meaning and function. Here, goodwill is no longer just an accounting concept in the acquisition process but becomes an incentive mechanism that encourages participants to take on the role of guarantor in the system. Guarantors in the IXO protocol provide guarantees for fundraisers, and this act of guaranteeing itself is a manifestation of trust. When guarantors successfully help fundraisers obtain funds and the fundraisers achieve their profit goals, the guarantors will receive goodwill as a reward.

The goodwill that guarantors earn can not only be directly converted into economic benefits but also enhance their status and credibility in the system, increasing their opportunities to earn more in future transactions. This accumulation of goodwill can be seen as an accumulation of social capital, which can bring more collaboration opportunities and higher social status to the guarantors.

The value of goodwill is also a very important concept in the traditional world, but the value of goodwill entering the crypto world through DeFi protocols is not limited to a single project.

Conclusion:

In summary, using the IXO Protocol model and practical examples to explore the issues mentioned at the beginning—if IXO Protocol can be successfully implemented, then DeFi will play a role in the development of Web3 projects that is comparable to the optimization of capital allocation in traditional finance; the practice of combining IXO protocol and SocialFi will integrate the goodwill of DID into the construction of the economic system of the crypto world, reinforcing DeFi's position in the crypto ecosystem—it will no longer be just a zero-sum financial game.

But this is just a small step in the post-DeFi 2.0 era; the construction of the economic order of the crypto world centered on DeFi has just begun.